Analysing buyers' and sellers' strategic interactions in marketplaces: an evolutionary game theoretic approach.

Abstract

We develop a new model to analyse the strategic behaviour of buyers and sellers in market mechanisms. In particular, we wish to understand how the different strategies they adopt affect their economic efficiency in the market and to understand the impact of these choices on the overall efficiency of the marketplace. To this end, we adopt a two-population evolutionary game theoretic approach, where we consider how the behaviours of both buyers and sellers evolve in marketplaces. In so doing, we address the shortcomings of the previous state-of-the-art analytical model that assumes that buyers and sellers have to adopt the same mixed strategy in the market. Finally, we apply our model in one of the most common market mechanisms, the Continuous Double Auction, and demonstrate how it allows us to provide new insights into the strategic interactions of such trading agents.

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